Sanka Gayashan/AP Photo
Sri Lankan Buddhist monks wait to welcome then-President Mahinda Rajapaksa at the Mattala Rajapaksa International Airport in Mattala, Sri Lanka, March 18, 2013. The airport is one of the infrastructure projects Sri Lanka built in partnership with Chinese lenders.
The United States and other developed countries have long been highly critical of China’s Belt and Road Initiative (BRI). Their critiques have centered on the questionable standards and sustainability, as well as poor transparency, of many BRI projects, which now dot Eurasia, Africa, and South America. While worrying about China’s growing influence in the global South, the G7 nations, however, have continually failed to present viable alternatives to Chinese infrastructure financing in the developing world.
The June 12 announcement of the Build Back Better World partnership at the recent G7 meeting appears to signal a strategic pivot, with “the West” finally offering a vision for infrastructure development that explicitly aims to challenge China (the Blue Dot Network notwithstanding). Through pumping private capital into projects and coordinating among multilateral development institutions, the G7 plans to provide infrastructure financing to low- and middle-income countries in a “values-driven, transparent and sustainable” manner. In doing so, the G7 aims to roll back China’s increasing influence in the global South, while also redressing the developing world’s $40 trillion infrastructure gap.
Though G7 nations deserve praise for attempting to address serious concerns surrounding infrastructure financing, the B3W partnership fails to account for the factors that have made China a popular development partner for countries stretching from the Philippines and Sri Lanka to Iran and Djibouti. As recent research, as well as our own conversations with local policymakers, has revealed, political elites in host countries frequently choose to work with China over established lenders despite concerns about the quality and sustainability of Chinese projects.
Chinese lenders have historically been more flexible with regard to standards and transparency, focusing instead on meeting the needs of local political power brokers.
For many politicians, the ease of working with Chinese organizations trumps the aforementioned issues, as well as most geopolitical considerations. China’s “no strings attached” approach is simply more appealing. In the past, Beijing has been willing to provide billions of dollars for financially risky or environmentally unsustainable projects, work with developing countries on their terms, and overlook international best practices in order to bolster the political ambitions of sometimes corrupt local elites. And China often has hidden strings, in the form of requirements on the use of Chinese corporations and workers.
Whereas established development institutions usually undertake lengthy and extensive feasibility studies and risk analyses, Chinese lenders have historically been more flexible with regard to standards and transparency, focusing instead on meeting the needs of local political power brokers. Moreover, Chinese consultant fees and equipment are normally cheaper than those of Western and Japanese competitors. As a result, Chinese financing has eased countries’ reliance on traditional lending institutions, providing regimes with fiscal and political leeway to pursue alternative development pathways that are more affordable and less restrictive.
These dynamics are readily apparent in the Philippines. As Alvin Camba illustrates in a recently published paper, President Rodrigo Duterte personally selected the Export-Import Bank of China (EXIM) to bankroll two significant infrastructure initiatives, the Kaliwa Dam and the Chico River Pump Irrigation Project, precisely because EXIM was willing to forgo risk assessments and “[bypass] local social and environmental regulations.” Furthermore, both projects broke Philippine laws requiring the consent of indigenous communities to build on their lands, an issue that both Duterte and EXIM were willing to disregard. Notably, Japanese lenders, such as the Japan Bank for International Cooperation, were interested in financing the projects, and offered loans with lower interest rates. But Duterte reportedly rebuffed their overtures, likely due to their stricter standards and commitment to transparency.
It is important to note that Duterte, rather than EXIM, lobbied to skip the risk assessments, as he wanted to build both projects as quickly as possible for political considerations. By collaborating with EXIM, Duterte supported the interests of a network of powerful political elites whose backing he will likely draw on if and when his daughter, Sara, runs for president in 2022, as is widely expected.
Similar trends have also played out in Sri Lanka, which was accused of being “debt-trapped” by Beijing after several China-financed infrastructure projects failed to become commercially viable. The most notable example was the Hambantota Port, which, after running at a deficit for several years, was leased to the China Merchants Group for 99 years amid concerns over the country’s ability to service its debt obligations. Although the debt trap narrative has since been debunked, its central claim was that China was solely to blame for the failure of the port and other projects.
Closer analysis, however, reveals the extent to which Sri Lankan leaders themselves mobilized Chinese infrastructure financing in service of their own political goals, leading to poor project selection and implementation. As Matt Ferchen and one of us have argued, the Hambantota Port, along with many of Sri Lanka’s other failed infrastructure projects, are key examples of the dangers misaligned political incentives and poor local governance pose to positive development outcomes.
For example, in order to solidify his political standing and deliver on promises to speed Sri Lanka’s development, then-President Mahinda Rajapaksa signed loans with Chinese entities for the port, the island’s second international airport, a convention center, and a 35,000-seat cricket stadium, in and around Hambantota, a small fishing village on the island’s southern coast. All of these projects were named after the then-president, whose brother now runs the country. As in the Philippines, the Rajapaksa administration and Chinese lenders largely forwent comprehensive feasibility studies and risk assessments in favor of political expediency and speedy project completion. Today, the international airport is known as one of the world’s “emptiest.”
The Build Back Better World partnership fails to account for the factors that have made China a popular development partner.
Despite these factors that have made BRI financing attractive, we do not mean to suggest that developing countries have never criticized failed or unsustainable Chinese projects or questionable lending practices. In fact, several nations have recently pushed back on China-financed projects. Malaysia and Myanmar, for example, have successfully renegotiated the terms of BRI projects, and Pakistan has vowed to phase out coal for electricity generation, throwing the future of several planned China-backed power plants into doubt. Perhaps with a nod to the growing concerns of partner countries, President Xi Jinping has called for BRI projects to follow international standards and become more transparent. At the 2019 Belt and Road Forum, Beijing asked lenders to provide more financing for sustainable projects, and China’s largest commercial banks have pulled back from issuing BRI loans following high-profile project failures, as well as unease about China’s own domestic debt crisis.
Though these developments may signal that China will take risk analyses and project sustainability concerns more seriously going forward, they are unlikely to fundamentally affect Beijing’s willingness to work with political elites and overlook local human rights and environmental justice issues, as evidenced by China’s recent $400 billion agreement with Iran that calls for investments in oil and gas. Therefore, illiberal regimes in developing countries will continue to see China as a useful development partner.
There is no doubt that the world, and especially developing nations, needs more financing for high-quality infrastructure projects, and the G7’s commitment to funding green, equitable, and transparent projects is certainly a step in the right direction. It will definitely win fans in countries across the globe, if it truly gets off the ground.
It remains unclear, however, whether the initiative will meaningfully compete with the BRI in countries whose regimes are attracted by the very factors that the G7 nations hold in low esteem, those that have made China such a popular financing partner. Instead of framing the G7 initiative in terms of competition with China, the G7 should instead present the initiative as complementary to the BRI. By no means should the United States and the rest of the G7 lower their standards in an effort to gain market share from China. This will entail, however, acknowledging that the G7 partnership will likely have limited appeal beyond countries with good governance.
That being said, the G7 can pursue values-driven, transparent, and sustainable projects in low- and middle-income countries that narrow the infrastructure deficit, while supporting local actors to achieve the U.N.’s Sustainable Development Goals, such as fighting poverty and promoting gender equality. Though usually unprofitable, these kinds of infrastructure investments are necessary for boosting the economies of developing countries, as well as the living standards of the billions who inhabit them.
Clearly, President Biden is leading the G7 charge on this Build Back Better World partnership, which is the international version, right down to the language, of Biden’s own domestic Build Back Better plan. As with his domestic infrastructure plan, Biden would do well to ensure that the international initiative has broad bipartisan support, as well as support across the G7. In this case, Republican geopolitical concerns about China increase the chances of cross-party collaboration. As Andreea Brinza notes, no Democratic president would have continued a project called “Make the World Great Again,” so highlighting B3W’s appeal among the other G7 nations will be key moving forward.
